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Deputy Prime Minister and Minister of Finance Chrystia Freeland at a news conference in Ottawa on Sept. 21.PATRICK DOYLE/The Canadian Press

Canada’s banking regulator is on a mission to root out foreign interference, national-security risks and illicit money flows from financial institutions. Unfortunately, the head of the Office of the Superintendent of Financial Institutions is fighting the good fight with one hand tied behind his back.

That’s because Superintendent Peter Routledge’s political masters are slow-walking legislative changes that would remedy lapses in the country’s national security apparatus. And the longer federal legislators dither, the more they undermine OSFI’s efforts to mitigate risks facing banks.

Sure, the Trudeau government deserves some credit for amending OSFI’s mandate this past June and giving the regulator new tools to prevent lenders from being exploited by foreign agents. But OSFI’s ability to gauge such risks, including illegal financial activities, ultimately hinges on an outdated anti-money laundering and anti-terrorist financing regime.

Mr. Routledge trod carefully this week when he broached the topic at the Global Risk Institute’s annual summit in Toronto. While he acknowledged there are tougher anti-money-laundering laws in other countries, he also took pains to stress that Canada also leads its peers in certain areas.

Perhaps. But OSFI is in an awkward position.

Fulfilling its new mandate requires the banking regulator to collaborate with other federal partners, including the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) and the RCMP. Even so, the OSFI doesn’t outrank either and cannot tread on their respective turfs.

“When one considers foreign-interference risk, we need to understand that Canada’s banks are not immune to threats from potential hostile actors, Mr. Routledge said during his keynote address on Tuesday.

“While we do not see widespread evidence of this in [federally regulated financial institutions] or the Canadian financial system, our mandate is to remain vigilant and act early to help ensure that a risk does not materialize and become a threat to their integrity or security.”

National-security risks could manifest in different forms including “money laundering and terrorism financing,” he added.

Still, OSFI’s ability to suss out such threats and determine whether they pose material risks depends on the intelligence it gleans from FinTRAC.

“In the course of FinTRAC doing its work, it may uncover risks that may have a potential significance for an institution that OSFI regulates,” Mr. Routledge told journalists after his speech.

Lamentably, FinTRAC’s oversight powers are lacking: By Ottawa’s own admission, the regulator’s mandate “should evolve to include the financing of threats to Canada’s national and economic security.” So until the government fixes this and other problems, the quality of information shared between FinTRAC, OSFI and even their boss, Finance Minister Chrystia Freeland, won’t be up to snuff.

Of course, there are plenty of other overdue items on Ottawa’s fix-it list. The RCMP has insufficient resources. And there is still no mandate for the national financial crime agency that the government announced last year.

Should Canadians be worried that a serious national-security risk could fall through the cracks? Absolutely.

Let’s not forget that Ms. Freeland was motivated to modify OSFI’s mandate because she was required to directly intervene at Wealth One Bank of Canada. The Globe and Mail reported in February that she sent a strongly worded letter to three of the founding shareholders of the bank late last year after learning they could be susceptible to coercion by China’s government.

What’s more, Ms. Freeland’s correspondence stated that other domestic financial institutions have alleged that the trio may have engaged in “the commission of money laundering.” She has since directed the men to divest their shares in Wealth One and ordered the bank to comply with extraordinary national-security conditions, The Globe reported earlier this month.

More recently, new questions have emerged about India and whether it, too, is meddling in Canada’s internal affairs.

Prime Minister Justin Trudeau stunned the world when he accused “agents of the government of India” for the fatal shooting of Hardeep Singh Nijjar, a Canadian who was a key player in the secessionist Khalistan movement. New Delhi has rejected the allegations, and Mr. Trudeau still owes Canadians transparency about the evidence underpinning his claim.

But the Trudeau government also has an obligation to follow up on New Delhi’s allegations of illicit financing, organized crime and human trafficking perpetuated by rogue actors within the Indo-Canadian community. If illegal funds are flowing from Canada to recipients in India, through our banks, it is both an issue of national security and foreign interference.

Does the government recognize it as such? And, crucially, are OSFI, FinTRAC and the RCMP able to collaborate effectively to counter these threats?

That is shaping up to be the first test of OSFI’s new mission because of how easy it is for organized criminals to use anonymous shell corporations to access the banking system and launder illicit profits.

But to tackle the problem effectively, our parliamentarians need to take off the blinders and think laterally about the risks facing Canadian banks.

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